William Nordhaus won the economics award for figuring out the cost of climate change, but many say he’s underestimated the price we’ll all pay.
What it means: Most economists love a bit of maths, so it’s not surprising that the the Nobel Prize for economics judges were fans of Nordhaus’ Dynamic Integrated Climate-Economy (DICE) model. DICE was the first real attempt to figure out exactly how much climate change was going to cost us in cold hard cash. It looked at how much environmental damage will slow down economic growth (because it’s hard to be productive when your factories are under water) and tried to work out the social cost of carbon.
Economists started talking about ‘social costs’ when they realised the money we hand over for a good or service isn’t actually a very accurate measurement of how much that thing costs us. So each pack of cigarettes we smoke doesn’t just cost us the tenner we give the cashier, but the money we’ll lose if we develop lung cancer and have to take time off work.
Economists like Nordhaus think that neglecting social costs has increased environmental damage, because profit-hungry businesses would change their environment-damaging behaviour if they had to pay for it. Nordhaus was one of the first people to call for carbon taxes, which essentially charge people for polluting, with the aim of putting people off doing it.
Unsurprisingly, lots of business dislike carbon taxes. More surprisingly, so do many environmentalists. They say making people pay to pollute just gives them a guilt-free license to keep polluting. Also, as only smaller businesses and poorer countries won’t be able to afford to pay for them, carbon taxes increase inequality by allowing only the richest to grow their businesses and their wealth. Many environmentalists also dislike DICE, saying that reducing everything to countable money tries to put a price on something that is priceless (how do you accurately value the needs of future populations, or the enjoyment people get from nature?).
So, to sum up, the work the Nobel committee rewarded for finally addressing “some of our time’s most... pressing questions” may have (1) hugely undervalued the cost of environmental damage, and (2) promoted a solution that doesn’t work, is a big waste of money and distracts us from making the radical changes we need to save our planet. Jolly good.